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I can see why it would affect startups not making a profit but why would it dramatically affect FAANG (e.g. some of the most profitable companies in the world t
by jere 1y ago
I can see why it would affect startups not making a profit but why would it dramatically affect FAANG (e.g. some of the most profitable companies in the world that have been running for decades)? The article contributes all these large layoffs in FAANG, in part, to this tax rule.
- testrun 1y agoBecause they are profitable. So the cost is deductible over 5 years, instead of one year. A very simple example: Revenue: $ 1 000 All other cost except software: $ 500 Software cost: $ 100 Net profit (if software is allowed as opex): $400 Tax on $400 (@30%): $120 Net profit after tax: $280 However, if it is capex(amortized over 5 years): Revenue: $ 1 000 Other cost (except software): $500 Software cost: $ 100 Net profit before tax: $ 400 Important: But now for tax purposes you can only deduct $20 this year as a cost ($100 amortized over 5 years) So now you have to add back $80 to net profit for tax purposes: $480 Tax (@30%): $ 144 Net profit after tax: $400 - $144 = $256 So the difference is $280 - $256 = $24 Just a few notes: 1. I assume tax rate at 30%, it can be something else, principle stay the same 2. That all other expenses are tax deductible
- jere 1y agoThere's a difference of $24 but I have $1200 in cash reserves. And I make up the difference later. Oh no! Guess I have to lay off 10% of my employees now.